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Qui Tam Actions and Public Disclosure

Below, Stanford Law School’s Jacqueline de Armas previews Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson, one of two cases to be heard by the Supreme Court on Monday, November 30.  Check the Graham County Soil & Water (08-304) SCOTUSwiki page for additional updates.

The False Claims Act creates civil penalties for leveling “fraudulent or false” monetary claims against the government, and it allows “relators” – private persons on behalf of the government – to bring qui tam actions to recover statutory damages and civil penalties (which are shared with the government) for such false claims.

Under the Act, courts lack jurisdiction over qui tam actions in which the information substantiating the claim has already been publicly disclosed.  The Act further defines public disclosures as “allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media.”  On Monday, November 30, in No. 08-304, Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson, the Court will consider whether the public disclosure bar applies to a qui tam action based on information provided in state or county audits, reports or investigations, or whether the bar applies instead only to federal audits, reports or investigations.

In 1995, two North Carolina counties – Graham and Cherokee – received federal disaster relief to clean up damage caused by a storm.  That same year, Karen Wilson, a secretary for Graham County and the respondent in this case, complained about fraud by a ring consisting of federal government inspectors, a Graham County Conservation District employee, and the contractor hired to perform the cleanup. In 1996, a private accounting firm hired by the county to perform an audit raised similar fraud concerns, as did a report prepared by the North Carolina Department of Environment, Health, and Natural Resources.

In 2001, Wilson filed a qui tam action under the False Claims Act.  The district court held that it lacked jurisdiction over Wilson’s FCA claims because both the county audit and state report triggered the Act’s public disclosure bar.  On appeal, the Fourth Circuit held – like the Third Circuit before it, but in conflict with three other circuits – that state and local audits, reports, and investigations were outside the scope of the public disclosure bar.  In the court’s view, the “context and consideration of the structure of the statute” indicated that the public disclosure bar applied only to federal administrative reports, audits, or investigations.

Petitioners Graham County et al. filed a petition for certiorari in which they emphasized, among other things, the circuit split and the large number of claims brought under the Act.  The Court called for the views of the Solicitor General, who filed a brief urging the Court to grant certiorari.  Certiorari was granted on June 22, 2009.

In their merits brief, petitioners argue – as they did in their petition for certiorari – that the statutory language is plain and that the statute’s use of the term “administrative” is not the same as the phrase “federal administrative.”  Moreover, they contend that the Fourth Circuit improperly relied on the doctrine of noscitur a sociis – a word is known by the company that it keeps – because only two of the words and phrases in the statute are uniquely federal; by contrast, the statute also applies to “news media,” which is clearly not federal.  The Fourth Circuit’s interpretation, they also argue, undermines the purpose of the public disclosure bar by encouraging qui tam actions based on publicly disclosed information. Finally, they seek to refute public policy arguments made to support the Fourth Circuit’s interpretation, including the prospect that a contrary holding would encourage states to distort reports that highlight wrongdoing. This final argument is supported by an amicus brief on behalf of thirty states, who argue that including state and county reports and audits within the scope of the public disclosure bar will protect state interests. Petitioners counter that this is not true:  indeed, because states are the original source of state reports and audits, they could bring qui tam actions themselves.

In her brief on the merits, Wilson – supported by an amicus brief by the Solicitor General – argues that because the word “administrative” is sandwiched between two clearly federal qualifiers – “congressional” and “Government Accounting Office” – in the public disclosure bar, “administrative” is properly read as also being limited to federal administrative proceedings.  She divides the public disclosure bar provision into three different kinds of public disclosures:  (1) those made during a “criminal, civil, or administrative hearing”; (2) those made during a “congressional, administrative, or [GAO] report, hearing, audit, or investigation”; and (3) those made in “the news media.”  Because these categories are distinct, Wilson contends, the reference to disclosures by the news media does not undermine the purely federal nature of the second category.  Wilson also argues that the Fourth Circuit’s interpretation of the public disclosure bar is consistent with the history of the Federal Claims Act, the 1986 Amendments to which were intended to “encourage more qui tam suits” by relaxing the jurisdictional bar.  Thus, including state and local audits, reports, and investigations within the public disclosure bar would expand the jurisdictional bar, contrary to congressional intent. Finally, Wilson counters that concerns that the Fourth Circuit’s interpretation will encourage “parasitic relators” are overstated and contrary to the Act’s purpose of encouraging of qui tam actions.